How to Invest in Municipal Bonds in Australia
A municipal bond is a debt instrument offered by United States' municipalities. The funds are used to fund infrastructure, parks and other local resources. Municipals bonds are attractive United States investments because the interest earned on the bond is exempt from federal and state taxes. Australian investors can buy municipal bonds through a brokerage firm that is designed to facilitate it.
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Instructions
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Open an account at a brokerage firm that allows Australians to open an account as a non-resident. FSM Bonds and e*Trade are two examples of firms that allow non-residents to open accounts in the United States.
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File a W8-BEN with the brokerage firm. This designates the account as a non-resident account without a domestic tax identification number. All non-resident accounts will have a 30 percent automatic tax withholding. You may get some of this money back later.
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Find the bonds you wish to purchase and place a "buy" order with your brokerage firm.
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File a U.S. tax return based on the dividend and interest rate data. The U.S. has a tax treaty with Australia that caps dividends at a 15 percent tax rate and interest at a 10 percent tax rate. Discuss the income with a tax advisor to see exactly how much money you will owe.
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Tips & Warnings
Because municipal bond income is tax free, the interest rates are often lower than taxable bonds. Since non-residents are subject to taxation, the benefit of the bond should be examined if the interest rate is not sufficient to make up the tax differential.
